LIMA, Peru — 'All successful revolutions require a foreign enemy. The (International Monetary) Fund is my enemy."
President Alan Garcia of Peru, a defiant maverick of international finance, has found an improbable ally in his search for radical reform. It is called supply-side economics.
Garcia was recounting the virtues of demand-led growth to a recent visitor when his office telephone rang. It was the president of Peru's central bank, who reported that foreign reserves had inched up a few million dollars.
"Good," Garcia said, smiling. "Don't let go a single one."
Seven months into a five-year term, the 36-year-old president basks in his international reputation as a brash iconoclast. In Peru, he is wildly popular. He sails close to the wind--and relishes every minute of it.
He bristles with ideas, projects, reforms--redistribution of income, rapid transit for clogged Lima, canals to increase agricultural production, more work and less corruption to restore public confidence in government. And now, he has given birth to Garcianomics--like Reaganomics, except that the spin is to the left, not the right.
The underpinning of Garcia's drive for democratic reform is his decision to restrict payments on Peru's $14-billion foreign debt to 10% of annual export earnings--around $300 million this year. Curtailing payments leaves him money with which he hopes to stimulate reform and growth in a have-not country where living standards have fallen back to levels first achieved two decades ago.
Without change and development to benefit the poor majority, Garcia argues, there can be no hope for democracy or stability in a nation of 20 million that is ready to explode because of hunger and social unrest.
Garcia's go-it-alone nationalism has won him outspoken admirers among the political opposition in other Latin American countries, where development is mortgaged to heavy debt repayments.
It has also earned him the enmity of foreign bankers and international lending institutions and roused grave disquiet within the Reagan Administration. Washington dislikes Garcia's fiery rhetoric, his defiance of the international economic rules and his foreign policy, which has room for friendship with Nicaragua, Cuba and North Korea.
Secretary of State George P. Shultz told a Senate committee in Washington recently that better relations with Peru would require "greater moderation" on the part of the Garcia government.
"We applaud President Garcia's commitment to stamp out narcotics trafficking and his determination to end terrorism within the context of democracy and human rights," Shultz said. But he added that a "mutually constructive relationship . . . will require greater moderation and cooperation and meaningful economic reform."
U.S. banks already list their Peruvian loans as "value impaired," and they have written off a substantial percentage of them. American economic and military assistance is suspended because of arrears. U.S. support continues, however, for Garcia's drive against Peru's flourishing cocaine industry.
The International Monetary Fund, which Garcia calls "a senseless institution," has warned that in April it will declare Peru ineligible for further assistance if $72 million in arrears is not dealt with properly. That may also trigger action from more than 200 creditor banks and rule out any further development assistance from the World Bank, the IMF's sister lending agency.
Garcia is prepared for the worst. Last week the central bank disclosed that it had withdrawn Peru's deposits of gold, silver and foreign exchange from U.S. and European banks.
Garcia does not appear anxious to break openly with the international financial community, but neither is he willing to compromise his Peru-first strategy. As a buffer against financial isolation that would force Peru to deal with trading partners on a cash-and-carry basis, Garcia is husbanding his foreign reserves, which have grown from about $890 million to about $1.5 billion since he became president, the government says.
"All successful revolutions require a foreign enemy," Garcia said in an interview. "The (International Monetary) Fund is my enemy. But the U.S. errs when it considers my attacks on the fund attacks on the U.S. Washington should realize that the fund is its enemy, too. I want to have good relations with the U.S."
The distinction between the fund and its principal backer may be a product of Garcia's conceit, but he is not alone among Latin American leaders in his hostility to the austerity that is the traditional cost of IMF support for sick economies.
Other major Latin American debtors, which pay painfully more than Peru does in terms of a percentage of exports, are having trouble generating needed growth. More than one looks with envy at Garcia's self-arranged payments.
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